Emerging Benefit Cards in Food Retail

May 13, 2022
Ted Mason- Retail Technology Consultant

As a food retailer, you may have already or soon will experience a customer presenting a new type of benefit card for payment in your store. These cards, often bearing the brands of major retailers, may be issued by health insurance companies, medical facilities or for over-the-counter (OTC) products under health savings account (HSA) programs.

Unfortunately, food retailers are placed in the uncomfortable position of having to tell customers these cards are not accepted in their store.

Forms of these emerging benefit cards include the following:

  • Various forms of over-the-counter (OTC) flexible spending accounts (FSA) and HSA health product cards. These cards may be provided to the employees of companies for use as reimbursement for healthcare costs not directly covered by health insurance policies.
  • Healthy foods benefit cards provided by health insurance companies directly to their plan subscribers. These cards are often provided as an incentive to include more healthy food products in their diet.
  • Produce prescription cards as part of Food as Medicine or Gus Schumacher Nutrition Incentive Program (GusNIP) projects.
  • SNAP produce incentive projects that may also be associated with GusNIP.

Benefit cards include these key functionalities:

  • The cards are a form of a prepaid or debit account card where a payment system network provider keeps an electronic account balance. There are two types of cards.
    • Closed-loop cards may only be used at a single store or stores operating as a chain. An example is where grocery stores may sell a holiday gift card loaded with a certain value to customers that may only be used/redeemed in that specific store or chain of stores. In most cases, closed-loop card transactions travel from the store POS via proprietary communications channel directly to the host payment network system where the card balance is kept.
    • Conversely, an open-loop card is one that carries the brand of a card network, such as Visa or MasterCard, and is generally universally accepted at all stores displaying the card brand. These transactions generally travel along a standards-based electronic network between the store POS and account balance holder.
  • The cards are generally a restricted spend, meaning that only certain items or category of items that are a subset of the stores entire POS item file are eligible for purchase using the cards. Determination of which items are eligible (adjudication) and whether the store POS system makes the determination or the payments network makes the decision is an issue.

Representation of closed-loop and open-loop card-based payment networks connectivity to food retailers.

Accepting Benefit Card Issues

The primary challenge food retailers face in being able to accept benefit cards is a lack of electronic communications capability with the closed loop payment network providers who issue and manage the cards.

  • Large chain retailers have the technical skills and resources to incorporate electronic interfaces directly with closed loop payment networks thus allowing a processing “pipeline” between their stores and the card network system.
  • Most food retailers lack interfaces within their existing POS systems to communicate with the closed network payment system providers.
    • While the closed-loop payment system networks may be able to supply some form of a device or mobile application to allow a separate benefit card transaction to be conducted, the solutions involve separating eligible benefit items into a separate transaction for manual entry into the closed-loop system. This creates duplication of transaction times and creates inefficiency at the checkout for retailers along with inconvenience for all shoppers.
  • Since closed-loop payment networks are proprietary systems, food retailers could face the possibility of having to be connected to multiple closed-loop systems in order to accommodate the various benefit cards circulating in their marketing area.
  • There are retailer costs for accepting closed-loop payment cards and retailers will need to evaluate whether adding the capability to accept these cards is financially workable.
  • Even with open-loop benefit card networks, where the card carries the Visa/MasterCard or other network brands, there may be custom programming required at store level to accept these cards.

Independent grocers/supermarkets, convenience and corner stores, along with urban bodegas and rural grocers, need to think of these emerging transaction needs in totality and as interrelated rather than as individual issues. All of the above cards must be able to be used with online shopping platforms and at self-checkouts.

Additionally, POS providers for all retail food channels need to begin supplying functionality and communications capabilities to allow all food retailers the opportunity to accept these new payment options.

For more information, contact the National Grocers Association Foundation Technical Assistance Center at incentives@nationalgrocers.org or visit ngaftacenter.org.

*The NGAF TA Center addresses the challenges grocers and supermarket operators face in establishing nutrition incentive programs and is a proud partner of the Nutrition Incentive Hub. The Nutrition Incentive Hub, funded through a cooperative agreement from the United States Department of Agriculture, National Institute of Food and Agriculture, is a new resource that provides training, technical assistance, reporting\ and evaluation for those working to launch or expand SNAP incentives or produce prescription programs. The Nutrition Incentive Hub is led by Gretchen Swanson Center for Nutrition in partnership with Fair Food Network along with a coalition of evaluators, researchers, practitioners, and grocery and farmers market experts from across the country dedicated to strengthening and uniting the best thinking in the field to increase access to affordable, healthy food to those who need it most.